NSA Fallout in Europe Boosts Alternatives to Google

Deutsche Telekom has promoted a service that guarantees data will be stored in Germany, saying that can protect customers from access by U.S. Photographer: Ralph Orlowski/Bloomberg

(Corrects Atos executive title in 15th paragraph in story
published Dec. 20.)

Dec. 20 (Bloomberg) -- During its first four years, Berlin-based Posteo e.K. struggled to find customers for its secure e-mail service. That changed in June, when U.S. National Security
Agency contractor Edward Snowden revealed that his former
employer monitored phones and e-mails worldwide. In the past six
months, Posteo has tripled the subscribers of its 1-euro-per-month ($1.37) encryption service, to more than 30,000.

“The NSA reports were the final straw,” said Daniel
Hundmaier, a 42-year-old communications officer in Berlin who
switched to Posteo, stopped using Google Inc.’s search engine,
and changed the operating system on his phone.

As European consumers like Hundmaier focus more on Internet
privacy, they’re avoiding the likes of Google, Amazon.com Inc.
and Yahoo! Inc. Phone operators such as Vodafone Group Plc and
Orange SA and providers of Internet computing services like
Deutsche Telekom AG’s T-Systems have started stressing that
stricter European laws on privacy make the region a safer place
to store client data.

The shift has created a windfall for privacy-focused
startups and small companies that promise enhanced security.
Shares of S&T, a computer services company from Linz, Austria,
attributed growth of almost 50 percent in orders this year to
increased concerns over data security among customers. German
systems integrator Cancom SE says its operating profit climbed
18 percent in the third quarter, largely due to fallout from the
NSA scandal. Its shares have jumped 69 percent since June 1.

“Made in Germany is high in demand,” said Klaus Weinmann,
chief executive officer of Cancom, based in Jettingen-Scheppach,
a market town 100 km (62 miles) west of Munich.

September 11

This week, a U.S. federal judge ruled that the NSA probably
acted illegally in collecting telephone-call data, allowing a
lawsuit claiming the practice violates the U.S. Constitution to
go forward. U.S. District Judge Richard Leon in Washington said
the plaintiffs would probably prevail at trial on their claim
that the right to privacy outweighs the government’s need to
gather and analyze the information.

While the Sept. 11 terrorist attacks galvanized U.S. public
support for data collection by law enforcement and intelligence
organizations, memories of life under Nazi or Communist rule has
helped spur deeper concerns about privacy among European
citizens and institutions -- particularly in Germany. A poll
published last month by the German Marshall Fund of the United
States found that 72 percent of Germans say governments
shouldn’t collect phone and Web data on citizens of allied
countries, versus 44 percent of Americans.

$35 Billion Lost

Whereas U.S. encrypted e-mail provider Lavabit shut down
after the FBI demanded access to its encryption keys, and
American peer Silent Circle ended a similar service as a
preventive measure, privacy legislation in Europe helps
companies like Posteo win wary consumers.

“Our goal is to gather as little data as possible,” said
Posteo founder Patrik Loehr. “It’s quite amazing how much
demand that approach has generated over the past weeks and
months, even from non-German clients.”

International outrage over NSA surveillance may cost U.S.
companies as much as $35 billion in lost revenue through 2016,
according to the Information Technology & Innovation Foundation,
a policy research group in Washington whose board includes
representatives of companies such as International Business
Machines Corp. and Intel Corp.

Anti-American Sentiment

Google declined to comment but noted that a company
representative cited the ITIF report in testimony at a Senate
hearing last month. Microsoft and Yahoo declined to comment.
Amazon didn’t respond to a request for comment.

Akamai Technologies Inc., which operates servers across the
globe to accelerate the shipment of Internet content, will
probably lose some business in Germany because of “anti-American corporate sentiment,” Chief Executive Officer Tom
Leighton said last month.

Deutsche Telekom has promoted a service that guarantees
data will be stored in Germany, saying that can protect
customers from access by U.S. authorities. France’s Orange last
month said it’s increasing its focus on privacy and has pledged
to be more transparent with customers about where their data is
stored and how it’s transmitted.

French computer services company Atos, a rival to IBM, says
more customers are asking what country their data will be stored
in these days, and having servers in markets across Europe helps
alleviate their worries.

“We can’t visit a bank or insurance company today that
doesn’t see data protection” as a top concern, said Atos Senior
Executive Vice-President Gilles Grapinet.

E-Mail Megaphone

Some companies are choosing an even more cautious route: A
return to analog ways. Several of the 14,000 members of the
German Association for Small and Medium-sized Enterprises have
reverted to printing documents and are confiscating mobile
phones in meetings when confidential information is shared,
according to Marc Tenbieg, the group’s chief.

“We’re seeing how companies are increasingly questioning
the way they communicate internally,” Tenbieg said. “Do I have
to send this information by e-mail? It can seem like using a
megaphone.”

U.S. technology giants are starting to claw back. Microsoft
this year has been running an advertising campaign centered on
protecting data, citing a study that found 89 percent of U.S.
consumers worry about online privacy.

Determined Snoopers

The company this month also said it aims to expand
encryption to safeguard user information, ramp up efforts to
shield private data, and make its software code more
transparent. Yahoo! and Google have announced similar
initiatives to make their services more attractive to skeptics
of data sharing. Mozilla Corp., whose Firefox has about 20
percent of the global Web browser market, says more users have
downloaded data-privacy add-ons since the NSA scandal erupted.

Even companies poised to benefit from the growing focus on
privacy acknowledge there’s only so much they can do to protect
their customers since data can be inspected at many points as it
travels across the Internet. Encryption, though, can at least
make it harder for all but the most determined snoopers, said
Thomas Gutsche, co-founder of Tutao GmbH, a Hanover-based
company that sells a secure e-mail service, mostly to companies.

“There is no 100 percent security,” said Gutsche, who
says hundreds of clients have signed up for the service -- far
more than he had expected. “But it’s about staying ahead of the
attackers. How difficult are you going to make it for them?”